BAE bribery allegations: How the Guardian reported the Tanzania claims

The Serious Fraud Office (SFO) is expected to announce this morning that it will take the politically momentous decision to seek to prosecute BAE over bribery allegations.

The UK arms giant failed last night to meet a deadline to settle the case or face the courts, and has so far today showed no sign of changing its position.

The company is accused of paying out millions of pounds to win lucrative arms contracts from a number of countries, including Tanzania, the Czech Republic, Romania and South Africa.

After months of fruitless negotiation, BAE had been given a deadline by the SFO to plead guilty in a negotiated plea deal that would conclude a six-year investigation.

SFO sources told the Guardian there would be a statement concerning the case later this morning.

BAE was the biggest faller on the London stockmarket this morning, down over 4% at 334.8p, a fall of 14.4p.

Neither side has officially revealed their hand in what appears to have been a high-stakes battle between Britain's biggest arms firm and the agency entrusted with eradicating foreign bribery. However, Richard Alderman, the agency's director, has been widely reported to be in a determined mood, and ready to see the company in court. His personal credibility and that of the SFO are on the line.

SFO sources said last night discussions were continuing privately between SFO case controllers and lawyers from Allen & Overy and Linklaters, who are both representing BAE. Company sources insisted they "did not recognise any deadline".

A key element of an acceptable settlement package would have been the payment of large financial penalties, possibly of more than £500m in the case of a company the size of BAE, according to sources close to the talks.

A capitulation by BAE this week would be a turnaround for the agency, whose reputation was damaged three years ago when it was forced by Tony Blair's government to halt its investigation into BAE's Saudi arms deals.

A decision to prosecute would not be the end of the story. Alderman would have to gain the formal consent of the attorney general, Lady Scotland, to press charges. This power is due to be abolished, but still exists. Her decision could take weeks or longer, and history suggests she may be lobbied by BAE or members of the cabinet.

The last attorney general faced with the prospect of prosecuting BAE was Lord Goldsmith. He helped to force a closedown of the SFO's Saudi investigation in 2006 after an effective lobbying operation by BAE. His behaviour caused controversy about the politicisation of the role of the government's supposedly independent chief law officer.

After the Saudi investigation was quashed, the SFO was allowed to continue investigating BAE's deals in four other countries: Tanzania, the Czech Republic, South Africa, and Romania. BAE has denied all wrongdoing.

If criminal charges are brought, they are likely to involve at least the cases in Tanzania and the Czech Republic, where sources say the most progress has been made. BAE refused to comment last night.

The SFO began investigating BAE after the company's network of secret offshore "slush funds" was disclosed by the Guardian in an award-winning series of investigations by the newspaper.

The fraud agency's confidence that it could get results was increased last week when, in a legal first, the bridge construction firm Mabey & Johnson agreed a deal to plead guilty to corruption concerning foreign contracts. It paid more than £6m in penalties, replaced a number of directors and promised to turn over a new leaf. The deal included reparations to Ghana and other countries where it admitted bribes were paid to officials and politicians.

The Mabey deal was the first successful corruption prosecution of any size brought by a British government agency since laws were passed more than seven years ago, explicitly banning foreign bribery.

It was seen as a template that BAE could be prepared to follow, of confession followed by relative leniency. But BAE until now has insisted it was prepared to "allow the ongoing investigations to take their course".